Anadarko faces $16.9b bill

The Government has granted 10 new exploration licences to oil and gas companies.
Photo/AP

Texan oil giant Anadarko's environmental credentials and the future of its New Zealand offshore exploration programme are being questioned as the company faces a US toxic site cleanup and compensation claim which could reach US$14 billion ($16.9 billion).

On Friday US$2.7 billion was slashed from Anadarko's market value after a US judge ruled it was liable for environmental cleanup costs and claims related to chemical company Tronox which was formerly a unit of Kerr-McGee Corp - a company Anadarko acquired in 2006.

Kerr-McGee's troubled environmental legacy includes the operation of a plutonium processing plant where US labour activist Karen Silkwood worked. Ms Silkwood died in a mysterious car accident in 1974 after she highlighted health and safety issues at the factory.

US bankruptcy judge Allan Gropper last week indicated Anadarko's Tronox penalty may fall between $5 billion and $14 billion but has yet to decide the amount.

Anadarko's New Zealand spokesman Alan Seay said that "given the significant factual evidence supporting our position, we vehemently disagree with the judge's Memorandum of Opinion and we fully expect to pursue every avenue available to us through the appellate process, once a final judgment including damages has been rendered".

The US$39 billion company says it will appeal the ruling, which would require it to restore polluted sites and compensate 8100 claimants, but US analysts say the ruling will be a big financial blow to the company if it stands.

Even the bottom end of the range is far higher than the US$4 billion Anadarko agreed to pay to BP in a 2011 settlement related to the Deepwater Horizon catastrophe in the Gulf of Mexico.

Anadarko is currently drilling exploratory wells in deep water 160km off the Raglan coast in the first stage of an exploratory programme which includes the Carrack-Caravel prospect, 60km off Canterbury in waters 1.1km deep.

Coming just a few years after the blowout on Deepwater Horizon rig which was drilling a prospect in which Anadarko had a 25 per cent interest, Green Party energy spokesman Gareth Hughes said the Tronox affair further blotted the company's environmental record.

"Right now, across America, innocent people are suffering from debilitating illnesses as a result of contamination that Anadarko is trying to avoid having to clean up. This shows that Anadarko is not the kind of corporate citizen that we want operating in New Zealand.

"It calls into question how Anadarko would behave if the company had to compensate those affected by ... pollution in New Zealand."

Devon Funds management energy analyst Phillip Anderson said last week's court decision could have wider implications for the company.

The upper range of the potential payout was well above the company's 2012 full year earnings of US$11 billion and above its net debt at that point - which was also US$11 billion.

At the higher end of the range suggested in court, the payout "could be an issue for the company and its capital structure, given it's a high risk company already".

Reviewing exploration activities could be one response to such an increase in debt Mr Anderson said.

"The amount they're spending in New Zealand is probably tens of million a year so cutting that for a year or two isn't going to make much of a dent in the face of $11 billion debt.

"New Zealand's pretty meaningless in the global context but maybe they could look to cut on a wider basis", Mr Anderson speculated.

Mr Seay said: "our plans in New Zealand remain unchanged".

Toxic legacy

• A US judge says Anadarko may have to pay US$5 billion to US$14 billion for toxic site cleanups and compensation claims related to Kerr-McGee, a company it acquired in 2006. The US Government was seeking US$25 billion.

• In 2011 Anadarko agreed to pay BP US$4 billion as its share of liabilities related to the Deepwater Horizon spill.

• In 1984 Kerr-McGee reached a US$1.38 million settlement with the estate of former employee and activist Karen Silkwood over claims of workplace plutonium contamination.